NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has downgraded the ratings of Dekania Europe CDO I plc (Dekania I), which is a collateralized debt obligation (CDO) backed primarily by subordinate debt and perpetual preferred securities issued by insurance companies and, to a lesser extent, banks. Fitch has also assigned Rating Outlooks and Loss Severity ratings to the notes rated 'B' and better. The rating actions are as follows:

--EUR134,749,651 class A1, downgraded to 'AA' from 'AAA', placed on Rating Watch Evolving;

--EUR11,500,000 class A2, downgraded to 'A' from 'AAA', assigned Stable Outlook and 'LS3';

--EUR13,000,000 class A3, downgraded to 'A' from 'AAA', assigned Stable Outlook and 'LS3';

--EUR35,000,000 class B1, downgraded to 'BBB' from 'AA', assigned Negative Outlook and 'LS3';

--EUR15,000,000 class B2, downgraded to 'BBB' from 'AA', assigned Negative Outlook and 'LS3';

--EUR29,500,000 class C, downgraded to 'B' from 'A-', assigned Negative Outlook and 'LS3';

--EUR15,461,821 class D, downgraded to 'B' from 'BBB', assigned Negative Outlook and 'LS4'.


Fitch's rating actions reflect the rating review methodology described in the press release 'Fitch Revises Criteria for Reviewing U.S. CDOs Backed by Bank & Insurance TruPS' dated March 25, 2009. More specifically, the rating actions incorporate the impact of the first-time application of Fitch's Portfolio Credit Model (PCM) to evaluate the pool of bank and insurance corporate assets supporting the CDO notes. PCM is Fitch's main analytical tool used to determine default, recovery and loss rates for portfolios of corporate debt. The PCM correlation framework captures the risk of industry and sector concentrations, a prevalent characteristic of bank and insurance TruPS CDOs, as well as regional and country concentrations. The application of PCM resulted in increased rating loss rates for the highly concentrated bank and insurance portfolios. The elevated rating loss rates translated into insufficient credit enhancement to support existing ratings, hence the downgrades.

As part of these rating actions, Fitch has also assigned Rating Outlooks to the bonds rated 'B' and better to reflect the likely direction of any rating change over a one- to two-year period. The Negative Rating Outlook reflects the limited ability of the notes to absorb additional defaults, as well as Fitch's overall negative outlook for the European insurance and banking sectors.

Future rating actions will be largely driven by performance in terms of deferrals and defaults of the bank and insurance companies underlying these transactions.

Assured Guaranty provides a primary wrap for the class A1 notes of Dekania Europe I. On May 4, 2009, Fitch downgraded the Insurer Financial Strength (IFS) rating of Assured Guaranty Corp. (Assured Guaranty) to 'AA', Rating Watch Evolving from 'AAA'. The ratings on the Dekania Europe I class A1 notes have an unenhanced rating in the 'AA' category. The unenhanced rating categories are based on the quality of the underlying collateral as well as available credit enhancement to the tranches. Pending final resolution of the Evolving Rating Watch on Assured Guaranty's IFS rating, Fitch may shift its rating of the class A1 tranches to the higher of the unenhanced rating or the financial guarantor IFS rating.

Loss Severity (LS) ratings were also assigned with these rating actions. LS ratings were introduced in February 2009 to complement the existing Long-Term Credit (LTC) ratings for structured finance securities. LTC ratings exclusively address the probability of default of a security. The LS ratings provide an indication of the relative degree of loss that a security might incur in the event that the security defaults; as such it is necessary to consider loss severity (as indicated by the LS rating) in conjunction with probability of default (as indicated by the LTC rating.) The LS rating scale consists of five rating categories from 'LS1' to 'LS5'. LS ratings are assigned to securities that have corresponding LTC ratings in rating categories 'AAA' through 'B'. Additional information is available in Fitch's Feb. 17 global report, 'Criteria for Structured Finance Loss Severity Ratings', available on the Fitch Ratings web site at www.fitchratings.com.


Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.





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Source: Fitch Ratings